Millennials Now Ruining Wine As Well

Crappy chain restaurants. Canned tuna. Home ownership. Now, perhaps $100 wine can be added to the list of things millennials are killing.

Silicon Valley Bank released its annual state of the industry report on Wednesday, and it was gloomy. Overall wine sales in the US are actually down over the last six months – the first such drop in 25 years. Even during the 2008 recession, people kept drinking more wine.

“Millennials’ outside age is 38 now, and I expected to see them take on a larger component of wine,” McMillan told Wine-Searcher. “They’re sticking with spirits and beer. Spirits are doing fine. Wine is dropping.”The reason, according to Rob McMillan, executive vice president of Silicon Valley Bank’s wine division, is the inexorable changeover of the main market from boomers, who love expensive wine, to millennials, who do not. For years, we have been writing “do not love expensive wine YET.” But McMillan questions whether they ever will.

This puts the US in line with western Europe, where wine sales have been dropping steadily for years, and should send shivers through the wine industry around the world. The US is not only the world’s largest wine market: it has been one of only two bright spots, sales-wise, in the world. Overall wine sales continue to grow in China but the Chinese appetite for expensive wines hasn’t proven to be unlimited. Now the same appears to be true in the US.

Several factors are coming together to form heavy storm clouds over the expensive wine industry, and if you want to pinpoint the storm center on a map – Napa and Sonoma Counties.

First is a series of negative reports lately about alcohol’s impact on health. The boom in US red wine sales started in the 1990s after a 60 Minutes report on the so-called French paradox – that French people had fewer heart problems than Americans despite a diet of rich foods. Red wine got the credit.

Lately, health news about alcohol is almost exclusively negative, and it has spurred local governments to consider stricter regulations, such as tighter standards for blood-alcohol level while driving.

“The health minister of France said: ‘We all know that drinking wine is bad for you’,” McMillan said. “Another minister said: ‘No amount of wine is good’. When those statements come out of France, and that’s who they are, maybe other than cheese… All of these reports leave out the part about the hundreds of hours that have gone to prove moderate consumption is good for you. If we don’t change the message about wine, we’re going to lose the younger consumer.”

Millennials are much more health-focused than older Americans. Consider kombucha, a fermented beverage that doesn’t taste particularly good but is good for your digestion and is available everywhere now, sometimes even on tap.

“For boomers, if something wasn’t bad for you, it was OK,” McMillan said. “Younger consumers think, if it’s not organic and sustainable and local, I’m not putting it in my mouth.”

Another big problem for millennial consumers is their lack of buying power. Boomers have money and spend it on wine. Oft-overlooked Gen X members are now in their prime earning years and have become important wine consumers, drinking more wine and spending more on it every year. But younger millennials in particular have well-documented economic problems still stemming from the 2008 recession. Still mired in student debt and without secure jobs, millennials simply do not splurge as much on wine as expected.

“The big surprise for me is that the younger consumer is not taking on any of the more expensive wine,” McMillan said. “To the extent that was growth in the expensive wine category, it was 75 percent from Gen X and 25 percent from boomers and zero percent from millennials.”

Competition from spirits, and increasingly from cannabis, is part of the reason, he said. Millennials are more into spirits than either beer or wine, and McMillan thinks the experience of ordering cocktails is part of the reason.

“We have to figure out how to engage this young consumer without money,” McMillan said. “You look at the models that are working right now, and it’s all experience-based. You can go to a bar that’s got ax-throwing or billiards or any activities you want. And for cocktails, you have mixologists. They make drinks with flair. It’s entertaining. Wine doesn’t have anything like that.”

Tasting room visits are an interesting statistic. The average number of visitors per winery is up in Virginia and New York, but down in Napa and Sonoma Counties, and in fact wineries in those counties – the epicenter of the American fine wine industry – now receive fewer visitors than the national average.

An important caveat is that because Napa and Sonoma have so many wineries, the overall visitor numbers to Northern California are still greater than Virginia or New York. But the downward trend is especially troubling because small wineries now depend more on direct sales, which come either from the winery or from a wine club that people join when visiting the winery.

Millennials don’t like most Northern California tasting rooms in part because, McMillan said, “they’re your father’s tasting room”, and in part because tasting fees are so high. In Napa County, he said, the average tasting fee is $45.

“Young consumers travel in packs of four, so it’s $180 for a basic tasting,” McMillan said. “Our tasting rooms are a throwback to the Lifestyles of the Rich and Famous, while these guys want to stay outside and play cornhole.

“We can’t use our existing techniques to sell wines in our parents’ tasting rooms,” he said. “Right now if you looked at the average winery, roughly 61 percent comes from the tasting room or from the club. So about 61 percent comes from people who have to come to your winery. Name another company that does that. Imagine if General Motors, if you want to buy a car, you have to go to Detroit.”

It’s no coincidence that Constellation Brands just opened an innovative new tasting room in Napa County for its The Prisoner lineup of wines: The Prisoner is one of the few expensive wines popular with younger consumers. That tasting room has already seen official protests from neighbors that it’s not following county regulations.

“We’re in a pickle, and we have some choices to make as an industry,” McMillan said. “We’re going to have to do something. We can’t continue to market our product and talk about long days and cool nights while mixologists are entertaining and there’s an anti-alcohol movement that is fighting against us.”